Option Investor

Daily Newsletter, Thursday, 02/03/2000

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The Option Investor Newsletter         Thursday  2-3-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       2-03-2000           High     Low     Volume Advance Decline
DOW    11013.40 +  10.20 11079.50 10842.30 1,116,572k 2,071  1,037
Nasdaq  4210.98 + 137.02  4211.06  4085.53 1,714,349k 2,554  1,546
S&P-100  771.96 +   8.04   772.57   755.66    Totals  4,625  2,583
S&P-500 1424.97 +  15.85  1425.78  1398.52            64.2%  35.8%
$RUT     521.63 +  11.74   521.63   509.89
$TRAN   2621.59 +  11.93  2629.16  2598.86
VIX       23.72 -   0.66    26.38    23.39
Put/Call Ratio       .49

A Wild and Crazy Bond Market!

Call your insurance agent.  You might have whiplash.  Both 
equity and bond markets were all over the board as stock 
investors tried to figure out what was happening in the bond 
pits today.  The Nasdaq and the Dow saw triple digit trading 
ranges while the bond markets got crazy and stole the spotlight 
from the Nasdaq's third largest point gain ever.  

Fortunately tonight's wrap is not going to be a lesson on 
everything you always wanted to know about bonds but didn't care 
to ask.  Even so, bonds were the focus today and considering 
some of the rumors being floated about it was down right 
exciting (or terrifying) - if you were a bond trader.  Let's do 
a quick recap.  Yesterday the Fed raises interest rates by a 1/4 
point.  Both the Dow and Nasdaq yawn over the expected 
announcement but the yield on the 30-year bond falls from 6.42% 
to 6.308%.  Asian markets breathe a sigh of relief over the FOMC 
decision and the Japanese Nikkei rallies 207 points to 19,786.
Closer to home Amazon.com announces earnings after the bell, but 
more Amazon later.  Adding fuel to the bond's fire was an 
announcement by the U.S. Treasury that they would issue fewer 
long term bonds on top of their newly announced plans to buy 
back $30 billion in debt.

Fast forward to this morning.  Europe's Central Bank releases a 
surprise 1/4 point rate hike pushing interest rates up to 3.25%.
Suddenly the rush from institutional investors to buy 30-year 
bonds (with the newly diminished supply) becomes a flood when 
crowded with a bevy of European investors looking to U.S. fixed 
securities after their Central Bank's new rate hike.  The price 
on the 30-year bond spikes open pushing the yield to 6.148%.  
The buying spree continues and before 10:00 a.m. the yield 
almost breaks 6% with an intraday low of 6.054%.  Some market 
watchers said they almost felt the panic as bond traders 
scrambled to buy the long-term notes after the Treasury's 
announcement last night.

Yield on the 30 year bond

The bond market had already been in the spotlight ever since we 
saw the bond yield inversion hit on January 18th.  What is a 
yield inversion?  It is when the shorter term notes yield more 
than the longer-term bonds which traditionally offer the 
greatest yield.  Part of the fervor in the bond markets today 
was the severity of the yield inversion not only in the 30 yr 
and 10 yr notes but the 10 yr and 2 yr notes as well.  The 30 yr 
yield closed the day at 6.14%, the 10 yr yield closed at 6.46% 
and the 2 yr yield ended at 6.54%.  

The intraday moves on the 30 year bond hit a 3 point range 
today.  This means nothing to those that only trade Internet 
stocks, but it is a bid deal to bond traders who normally trade 
in 32nd's.  The T-bill actually closed up 2 full points.  Okay, 
I can already tell that some of you option traders out there are 
yawning.  That's okay, it gets better.

All of the bond action today was fanned by a red-hot rumor mill. 
On the top of the list were rumors of one or several large 
brokerage houses and hedge funds that were bleeding heavily from 
a short squeeze with this inverted yield curve and rush into the 
30-year bond.  The rumor was further embellished with word that 
the Federal Reserve was to hold an emergency meeting to discuss 
the volatility in the bond market and/or to save some of the 
larger hedge funds from the carnage.  This of course was denied 
by a Fed spokesperson.  Some of the more creative rumors 
circling the bond pits today were ideas that Friday's employment 
report had been leaked a day early and that traders were being 
fired for bad trades and steep losses in their company's 
portfolio.  One rumor even had bond traders being escorted off 
the trading floor by armed security.  You'd almost think they 
were a bunch of highschoolers passing notes when the teacher's 
back was turned.

Looking at a chart it is hard to imagine that only two weeks ago 
the 30 year bond was yielding 6.75% and the markets were 
concerned that we would see 7% soon.  Unfortunately, some bond 
watchers feel that should still be a concern.  Everyone knows 
that the Fed is very likely to raise rates again and quite 
possibly more than once over the rest of 2000.  The economy 
needs to slow down and the Fed will do anything they can to make 
it happen.  This, some say, has partly been the problem.  With 
the host of new traders recent to the market, Greenspan has 
helped produce an attitude that the FOMC will save them from 

What is a Fed chairman to do?  You announce a 25-point rate hike 
with comments about your stern stance to quash inflation like a 
bug using your biggest weapon of repeated rate hikes in the 
future.  What sort of response do you receive?  The supposedly 
rate-sensitive tech heavy Nasdaq rallies to within points of a 
new all time closing high.  Not only that, long term interest 
rates fall out from underneath you.  Suddenly the debate turns 
from how much will the Fed raise next time to how soon should 
the Fed raise again?  The FOMC's next scheduled meeting is set 
for March 21st.  Productivity has still been the economy's 
savior from encroaching inflation but Alan knows that it can't 
outpace it forever.  

In the mean time investors have renewed their hunger for tech 
stocks.  No longer do we look at valuations and interest rate 
fears but rising revenues and earnings growth.  Do tech stocks 
still have the momentum to outpace the Fed's plan for rising 
interest rates?  Looking at the Nasdaq's chart, the answer is 
yes. Or is this just another bear trap rally?

The news may have focused on the bond market but the Dow saw 
plenty of volatility on its own.  After a quick rally early this 
morning of +70 points, the ancient index quickly turned over and 
the selling began in earnest after 11:00 a.m.  By 12:30 the Dow 
hit its low for the day of 10,842 before traders snapped up 
stocks (mostly tech) to push the average positive again by the 
close.  Only 10 of the Dow 30 stocks actually closed positive 
today with GE leading the charge +5.18.  Others Dow leaders 
included HWP +2.94, INTC +4.13, and MSFT +2.81.  Traders 
suffered through a 237-point range only to close up +10.24 but 
still holding the 11,000 level.

On the other hand, the Nasdaq was the place to be if you were 
trading stocks - as usual.  Gapping up 61 points, the index 
managed to stay in positive territory all day despite an 89-
point drop intraday.  Overall, the Nasdaq saw quite a range 
adding 137 points (3.36%) and breaking above the 4200 level 
again closing at 4210.98.

The good news today was the market breadth.  On the NYSE 
advancers beat decliners 2071 to 1037 while new highs lost to 
new lows 53 to 76.  The Nasdaq was stronger with new highs 
beating new lows 188 to 36 but advancers only beat declining 
issues 2554 to 1546.  Volume was strong on both exchanges with 
1.11 billion shares trading on the NYSE and 1.699 billion on the 

Part of the leadership on the Nasdaq has to be accredited with 
the likes of AMZN and YHOO along with a host of semiconductors.  
Amazon.com is truly an amazing story for the new stock market.  
They lose more money than analysts expect and the stock rockets 
21.24% or $14.75 to $84.18 on the news.  According to Bezos, 
AMZN's CEO, the "Earth's most customer-centric company" is doing 
quite well.  Earnings came in last night with a loss of 55 cents 
a share or $185 million.  Last year the company lost 7 cents a 
share or a scant $22 million.  Expectations were low as AMZN 
recently announced layoffs in their workforce, which didn't bode 
well for the quarter's performance.  Wall Street had expected 
AMZN to lose 48 cents a share but some analysts were expecting a 
much worse 58 cents.  What powered the stock higher was Bezos' 
"drive towards profitability".  The company offered investors a 
plan and a goal for AMZN to actually be profitable.  Supporting 
those dreams was a 167% increase in 4Q sales topping estimates 
with a whopping $676 million from October to December.  AMZN now 
claims they have almost 17 million customers with repeat 
business accounting for 73% of sales.  With a flurry of upgrades 
and reiterations from brokers and the blessing of Internet 
analyst, Henry Blodget from Merrill Lynch, AMZN's shares soared.

Now that one of the old dogs of the Internet fold regained its 
"leadership" position, recently beleaguered YHOO caught 
investors' interest and garnered 9.83% or $32.25 for the day.  
YHOO looks like it has turned the corner after finding support 
at $300.  Investor interest seemed to be growing towards the 
close as volume began to pick up.  Traders are probably focusing 
on YHOO's 2:1 split payable on February 11th.

Other news today involved the retailers.  January sales numbers 
came in and the results were strong.  Retail sales numbers were 
strong enough to offset any slowdowns due to the harsh January 
storms.  One thought making the rounds was that money withdrawn 
from consumers accounts in preparation for any Y2K emergencies 
never made it back to the bank but instead wound up in 
retailer's registers.  Another industry analysts felt the strong 
January numbers were negative since January is more often 
thought of as a clearance month and margins were greatly 
reduced.  Wall Street appeared indifferent and only rewarded 
those with the most stellar of gains.  Same store sales were as 
follows:  Wal-mart (WMT) +4.1%, the stock closed -1.13 to 
$57.25;  Sears (S) +1.7%, the stock +0.13 to $31.19; Target 
(TGT) +5.7%, -1.94 to $66.06; K-mart (KM) +3.6%, +0.13 to $9.00; 
Federated Department Stores (FD) +4.2%, -1.50 to $41.31; May 
Department Stores (MAY) +2.3%, -0.44 to $30.31; The Limited 
(LTD) +9.0%, +1.56 to $34.81, Kohl's (KSS) +8.5%, +3.75 to 
$77.50, and the Gap (GPS) +11%, +6.06 to $52.88.

Retail wasn't the only sale going on.  Vodaphone (VOD) finally 
got approval from Mannesmann AG for what will be the biggest 
merger in history.  Mannesmann's senior officer, Klaus Esser, 
said he would recommend to his board that they accept VOD's 
offer of $180 billion.  Together they would become the world's 
largest wireless communications company.  VOD shareholders would 
control a 50.5% stake in the combined company.  This had been a 
previous deal breaker as Mannesmann had demanded a 50% stake in 
the new company.  

What can traders expect for tomorrow?  There has been some 
concern that the next couple of weeks is a virtual blackhole for 
market moving events and news.  Earnings are almost over and 
tomorrow's economic reports are the last major market moving 
events for the near future.  Is the market going to roll over in 
a bout of post-earnings depression or merely be range bound 
awaiting the next catalyst to spur investors' fear or greed?
The collective masses are still on Fed watch and will probably 
remain so for the undetermined future as the hawkish FOMC sits 
perched to act on any sign of rising inflation.  Market watchers 
are already figuring in an 88% chance for another rate hike at 
the next Fed meeting in March.  With nothing on the horizon 
equity traders may have to look to the bond market for 
direction.  Unfortunately, everyone seems to agree that the 
volatility in bonds is not over.

This means that tomorrow's economic reports could set the tone 
for the next couple of weeks for both bonds and stocks.  Current 
estimates for the non-farm payrolls tomorrow morning range from 
255,000 to 270,000.  The challenge is that even if the report 
comes in near expectations, this tightness in the job market 
will continue to fuel inflation concerns.  What makes tomorrow's 
report wild card is January employment numbers can vary wildly 
with seasonal changes.  It's common knowledge that the business 
world tends to beef up their holiday staff November through 
December and then lay off the extra help in January.  Also on 
our plate for tomorrow is the average hourly earnings numbers.  
Current consensus puts the gain at 0.3%.  To round out our triad 
of reports is the unemployment rate report.  Forecasts are 
looking for 4.0%, which would be a 30-year low.  All of these 
reports are due out at 8:30 a.m. ET and any of them, if they 
come in too high or too low, could really move the markets.

The good news is it looks like nothing can stop the Nasdaq.  At 
least until it hits the top of its range.  It does appear to be 
range trading.  If you are optimistic the top of the range looks 
like 4340, if you are feeling pessimistic we are already at the 
top of its range and this is a bear trap about to snap shut.

Nasdaq Chart


Dow Chart


The Dow is definitely stuck in a trading range but if you are 
bullish it looks like it's almost building an upside down head 
and shoulders pattern.  Plus, it's still in an oversold 
position.  Let's just hope the reports tomorrow are positive or 
we'll probably be looking at Dow 10,700 again.

Good luck and sell too soon.



Agency.com: On an Upswing?

Agency.com wants to get you on the Internet. Sounds great to 
me. The experts say the Internet is redefining the way 
businesses conduct business. E-strategy is key. 

Agency.com is an international professional services firm, 
providing clients with an integrated set of strategy, creative 
and technology services that take them from concept to launch 
and operation of their Internet businesses. 


Market Posture

As of Market Close - Thursday, February 3, 2000 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert

DOW Industrials   10,700  11,250  11,013    Neutral   2.01  
SPX S&P 500        1,350   1,500   1,425    Neutral   2.01  
OEX S&P 100          730     800     772    Neutral   2.01  
RUT Russell 2000     475     500     522    BULLISH  11.12
NDX NASD 100       3,200   3,850   3,851    BULLISH   2.03   *
MSH High Tech      1,650   1,900   1,925    BULLISH   2.03   *

XCI Hardware       1,300   1,460   1,439    Neutral   1.28
CWX Software       1,200   1,420   1,380    Neutral   1.07
SOX Semiconductor    700     745     870    BULLISH  12.21
NWX Networking       800     900     940    BULLISH   2.03   *
INX Internet         700     800     771    Neutral   1.06

BIX Banking          645     690     545    BEARISH  11.30
XBD Brokerage        400     450     428    Neutral  11.30
IUX Insurance        625     650     557    BEARISH  11.30

RLX Retail           950   1,000     920    BEARISH   1.28
DRG Drug             340     400     360    Neutral   1.28
HCX Healthcare       700     790     743    Neutral   1.28
XAL Airline          180     190     130    BEARISH   5.21
OIX Oil & Gas        280     315     269    BEARISH   1.27

Posture Alert
A post-Fed meeting relief rally continued Thursday as the NASDAQ 
posted its 3rd largest point gain ever on volume of 1.7 billion 
shares. Since Monday (1/31), the Nasdaq has climbed more than 
12%.  With semiconductor and Networking indices breaking into 
record territory, we have turned Bullish again across Nasdaq 
(NDX) and select technology sectors. 

Market Sentiment 

Thursday, February 3, 2000

Market Alert! Entering Failed Rally Zones!

With equity markets rallying sharply this week following the 
rebound of the bond market, investors are pouring money back into 
the game, but take a close look at many of the key market indices: 
we are back where a potential failed rally may appear.  
All seems well for now, but remember that we have the January 
employment report due out Friday (2/4) and the consensus is for 
an increase in non-farm payroll is for 255,000 new jobs with the 
unemployment rate dropping to 4.0%.  Keep a close eye on this 
report.  If this report come in hotter than expected, it will 
trigger a precipitous profit-taking sell off and reveal a classic 
top reversal pattern.  What's more, many technicians will point 
to the fact that many of the key indices are showing lower highs.  
Not a good sign.  

To help investors protect their portfolio, we have highlighted 
below the potential FAILED RALLY ZONES for several of the major 
market indices.

Market Indices    Closed   FAILED RALLY ZONE

DOW Industrials   11,013    11,000 - 11,800      
SPX S&P 500        1,425     1,425 -  1,474     
OEX S&P 100          772       780 -    800 
RUT Russell 2000     522       525 -    540  
XCI Hardware       1,439     1,400 -  1,455
CWX Software       1,380     1,380 -  1,425    






Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of 
analyst expectations.

Cash Flow:
The cash that has been sitting on the sidelines has been put to 
use as of late, as record volumes for the major indexes have been 

Short Interest:
From a contrarian stand, short interest (JAN-14) on the NYSE is 
still very high, totaling 3,973,256,735 shares. The short 
interest on the Nasdaq rose another 2.11% in the latest figures, 
its fourth consecutive record, to 2,413,628,695 shares. 

Mixed Signs: 

Interest Rates (6.153):
The current yield is now off of the highs, but any major 
economic indicator can knock it back to the highs. Currently, 
there is an inverted yield in the treasury market, which is 
technically bullish long term.


Volatility Index (23.55):
The VIX continues to prove that the low 30's are an excellent 
buying opportunity, and the low 20's continue to be a great 
selling opportunity. 

Energy Prices:
With the rapid rise in crude oil, everything from manufacturing 
to transportation will be affected by higher costs. These higher 
costs will be felt 1-2 quarters out, and could put pressure on 
profit margins.

The Power of Sentiment Analysis
It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

Pinnacle Index OEX              Friday       Tues     Thurs
Benchmark                       (1/28)      (2/1)     (2/3)

Overhead Resistance (765-785)     1.02        1.59      1.48

OEX Close                       738.04      766.89     771.1  

Underlying Support  (740-760)     0.54        1.25      1.51
Underlying Support  (700-735)    18.11       10.38      9.68

What the Pinnacle Index is telling us:
In Sunday's letter, we stated that based upon the Pinnacle Index 
numbers, we would not be surprised to see a relief rally this 
week on the OEX. Well, we got it. From here, the sentiment is not 
overwhelming in either direction. Overhead resistance (765-785) 
is moderately light and underlying support is gaining strength, 
but is still light. Based upon the sentiment numbers, we do have 
upside potential, but will most likely be trading range bound. 

Put/Call Ratio                  Friday     Tues       
Strike/Contracts                (1/28)     (2/1)      

CBOE Total P/C Ratio             .60        .45      
CBOE Equity P/C Ratio            .45        .38
OEX P/C Ratio                   1.41       1.05

Peak Open Interest (OEX)
                     Friday           Tues           Thurs
Strike/Contracts     (1/28)           (2/1)           (2/3)

Puts               700 / 7,185      700 / 7,748     700 / 8,653
Calls              800 / 6,190      800 / 7,307     800 / 7,273
Put/Call Ratio         1.16            1.06            1.19

Volatility Index    Major
Date                Turning Point       VIX

October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15   
May 14, 1999        Top                 25.01 
July 16, 1999       Top                 18.13 
August  5, 1999     Bottom              32.12 
October 15, 1999    Bottom              32.06
January 28, 2000    Bottom              29.09

February 3, 2000                        23.55

Please view this in COURIER 10 font for alignment

Daily Results

Index      Last    Mon    Tue    Wed    Thu   Week
Dow     11013.44 201.66 100.52 -37.85  10.24 274.57
Nasdaq   4210.98  53.28 111.63  21.98 137.02 323.91
$OEX      771.96  16.22  12.63  -2.97   8.04  33.92
$SPX     1424.97  34.30  14.82  -0.16  15.85  64.81
$RUT      521.63  -8.39   7.52   6.14  11.74  17.01
$TRAN    2621.59 -10.10   4.98  33.03  11.93  39.84
$VIX       23.72  -2.89  -1.38  -0.44  -0.66  -5.37

Calls              Mon    Tue    Wed    Thu   Week

PMCS      229.69  -9.56  25.06  13.69  10.44  39.63  Great week!
BRCM      323.56   5.31   7.44  18.69   8.13  39.56  Momentum
TQNT      192.00  -7.72   5.59  18.94  14.69  31.50  A leader
CMGI      124.50   7.06   2.88   4.06   5.00  19.00  Good timing
EBAY      165.00   2.50   0.88   0.06  14.00  17.44  New
SNDK      135.06  15.94   1.22  -0.19   0.16  17.13  New
NTAP      114.63   1.19   7.44   5.31   1.50  15.44  Poised to go
PSIX       95.44  -0.75   6.88   2.31   6.38  14.81  Nice start
LLTC      102.00   3.94   3.00   2.50   1.81  11.25  New highs
BCE       109.63   3.56  -3.13   7.81   2.75  11.00  New
BGEN      102.69  -6.00   8.13  -0.38   8.69  10.44  Catches fire
MUSE      172.88   0.31   6.19  -1.00   4.50  10.00  Encouraging
MFNX       73.00   2.53   2.50   2.69   0.13   7.84  Squirrelly
VOD        61.75   1.38   2.06   4.00  -1.25   6.88  Great play
VECO       60.50  -1.13   3.88  -0.44   2.19   4.50  Successful
LU         57.00   0.25   0.25  -0.75   1.50   1.38  Do as we say
ICIX       46.13  -2.00   1.63   0.19   1.31   1.13  Story here
EMIS       38.56  -1.75   1.25   0.00  -0.56  -1.06  Dropped
COVD       70.38  -2.44   3.25  -2.88  -0.75  -2.81  Nice bounce
FRX        66.00  -1.75   0.81  -1.81  -0.50  -3.25  Holds on
PEB       145.50 -15.25   1.25  -4.44  -1.06 -19.50  Dropped
SILK      136.00 -14.38  -5.25  -8.25   1.88 -26.00  Bounces


GBIX       38.00  -6.31  -1.06  -2.81  -2.94  -7.84  New
PGR        60.19   0.13  -0.25   0.88   0.94  -1.94  New
UAL        57.94  -0.75   0.81   1.06  -1.06   0.06  Resistance
IPG        49.00  -1.00   2.19   0.13   0.69   2.00  Gives clue
BBY        52.06  -1.00   1.94   0.06   2.31   3.31  Coming back?
ADBE       69.06  -2.50   0.81   5.44   7.75  11.50  Dropped


RELATIONSHIPS ARE EVERYTHING - Reviewing bonds, interest rates, 
yields and VIX. 

This market just presents a continuous learning opportunity. Just 
when you think you know how to trade it, something new and weird 
occurs. I thought a little refresher on the correlation between  
markets, bonds and interest rates might be appropriate, since it 
threw my trading today. We will also look at the VIX. 

First an update. The OEX market order I put in at the close on 
Tuesday was not filled. I guess I missed the closing cut off. I 
did not re-enter Wednesday because it was down in early morning 
and I saw no reason to jump the Fed announcement. My Nasdaq QQQ's 
did well though. The announcement generated little volatility so 
I held the Qs till I was stopped out with a decent gain, in the 
sell-off dip this morning, which was caused by confusion in the 
bond rates and fed rumors. I really didn't want to give these up, 
but my stops are pretty tight this week and I did not want to 
play against my plan. Yesterday I entered small positions in NOK 
and CSCO for split plays, but I am watching these very carefully. 
I am looking to enter VERT and INSP for their split plays, when 
my horoscope says it's the right time to buy. I actually tried to 
jump back into QQQ but my limit was not hit, as I watched them 
skyrocket up the rest of the day. (grrrrr!!)

Today's 30 yr Treasury bond rate (Long Bond) yield was all over 
the place. There was a lot of confusion because some are 
suggesting that the 10 yr bond will replace the 30 yr standard 
that we traders follow. People get confused when you replace 
standards. The U.S. Treasury Department auctions these bonds 
every six months. Long bonds are the most volatile of all 
government bonds due to their long maturities. Usually, a small 
change in interest rates causes an amplified change in the 
underlying bonds' price.

The Federal Reserve System basically controls the flow of money 
in the U.S. It regulates the U.S. monetary and banking system by 
monitoring the amount of new money printed and released, 
adjusting interest rates, watching member banks and acting as 
the government's own bank. The balance of the amount of money in 
circulation occurs every 6 weeks at the FOMC meetings at which 
the Fed adjusts interest rates to balance out the rate of 
inflation while trying to encourage growth. It is a delicate 
balance. The discount rate is the rate that banks pay to borrow 
money from the Federal Reserve. Yesterday, the Fed also raised 
the discount rate. There is also a Fed Funds rate, which is a 
short-term rate that banks charge each other, to cover short 
(over night) loans to cover their reserves. 

If the banks have to pay more money to borrow money themselves, 
you can bet they will pass the expense on down to you & me and 
the corporations, the housing markets, etc., etc. Increases in 
interest rates and in the expense of doing business, eventually 
causes decrease profits, and of course that affects market 
sentiment as investors think of the effects on potential 
earnings. Historically, when interest rates go up, the prices of 
bonds go down, yields go up and it is bearish for the stock 
market in anticipation of decreased earnings from the increase 
in the cost of doing business. Also, when rates go down, bonds 
go up and the stock market goes up. Bond prices and the stock 
market usually move in tandem. If the bond yield is low, 
investors feel their money is better put at risk, playing the 
market, so there is a market rally. If the bond yield is high, 
there can be a flight to bonds as a safer alternative to stocks. 

The low 30 yr bond yield today made techs more interesting, but 
the confusion in the morning about changing the standard along 
with a rumor that the Fed was calling an emergency meeting, 
caused Nasdaq to temporarily tank rapidly. Of course rumors are 
just that, and once it was dismissed, Nasdaq took off like a 
rocket as bond yields continued to stay low. I've been stuck with 
my mouth open all day, realizing I lost my QQQs entered on 
Monday's Nasdaq correction. That's what happens with tight 
stops. I kicked the desk, but that didn't help!

Part of the confusion today was that there is a divergence in the 
way the 30 yr bond is acting and how the 10 yr or shorter-term 
bonds are acting. They usually all move in tandem, but with this 
"new economy" thing going on, everyone and everything is a bit 
confused. The Fed raised interest rates yesterday in hopes to 
keep rates up, thus slowing the economy a bit. Today, long bonds 
rallied and yields dropped below the short-term rates and Nasdaq 
rallied. Personally, I have not figured all of this out yet, so 
I will go with the flow, follow the trend and keep my stops 
tight. This could be a very good sign or perhaps, another head 
fake? Darn! Just when I thought I understood the game!! 

One thing that I will be keeping my eye on the next two weeks is 
the VIX, or Volatility Index. Since February is typically a 
sell-off month, I don't know if this February will be 
different, or if it is soon to take a sharp turn down, just as 
everyone thinks Christmas is here again. The VIX has been a 
pretty good indicator of market extremes, if you use the 20/30 
figures (see below).

The Volatility Index is calculated by taking a weighted average 
of the implied volatilities of eight at-the-money OEX calls and 
puts which have at least eight days to expiration and an average 
time to expiration of one month. Traders look at it as a guide 
to future volatility and how the price of stock options may be 
influenced the closer option-expiration approaches. When the VIX 
is high, it hints that stock option volatility as a whole is high 
and premiums of both calls & puts are expanded. When the VIX is 
low, it indicates that stock option volatility is low. 

OIN tends to use the guidelines of a VIX of 20 or less and 30 or 
higher as its guide for us to prepare to jump ship or load up. 
These are not hard and fixed numbers but they are definitely 
figures to watch carefully. A VIX of 30 has given us some great 
buying opportunities on lows of the year, in the past. If you 
recall, the VIX hit over 30 on Monday correlating with Nasdaq's 
correction. If you bought then, you probably have a nice profit. 
Notice though, that the trick is making your trigger finger work 
and buy things, when the market appears to be crashing. The 
reverse is also true, when things look so rosy that you feel 
comfortable buying more, the VIX is usually getting lower and 
could possibly signal a sell-off is approaching, if not already 
occurring. Keep in mind, with an increase demand for options, the 
premiums tend to inflate. So, when you find yourself paying more 
and more for time premium, try to remember to think of the VIX. 
We want a stable VIX in the mid 20's. 

I was hoping that after writing this, I would have a feel for the 
near term market. Unfortunately, I'm still uncertain so I will 
wait, watch the trend and keep my stops tight.

References: DeMark On Day Trading Options by Thomas DeMark, 
Technical Analysis from A-Z by Steven Achelis and Trade Options 
Online by George Fontanills

Renee White


Tech Stocks with Dividends & T-Bills on Steroids

If you did well in 1999, you may be starting to have a good 
problem -- you have too much cash. In fact, you really can't see 
yourself trading straight calls or straight puts on the scale of 
your assets. In 1999, I was a gunslinger. I started with 15% of my 
overall portfolio in options, and I traded that part of my 
portfolio to huge gains. Now, I am facing a different situation. 
I'm still a gunslinger, but I only want to play the highly risky 
straight calls that everyone associates with options in the most 
favorable periods when earnings and splits give me predictable 

So, what to do with the rest? Well, my tax accountant suggests 
that CDs make sense for that part of my wealth that I will have 
to give back to the government on April 15, 2001, since I 
succeeded in pushing off part of my tax liability by taking some 
hefty profits on in the first 5 minutes the market was open in 
2000. A CD will pay something like 5%. So will a money market, but 
there are tax issues which would lead me towards the CD. Is there 
a way that options can help me to handle this situation?

I think so. In 1999, I had 50% drawdowns in my ST options 
portfolio. That was OK (not really!) -- I was a gunslinger, a 
Marine, etc, etc. Trading is war. That attitude won't do anymore. 
Now, I am a fiduciary, someone responsible for management of my 
own wealth. This is why I am developing a strategy of dividing my 
capital up into about 3 related pots -- 

1. Low Risk Capital & LT Stocks (50% of portfolio). Goal: 
Compound 5% per month. Strategy: Sell deep OTM Puts on stocks 
that I want to own, such as BRCM, VRSN & AFFX when the market, 
sector & stocks become oversold. Sell OTM Covered Calls on LT 
Stock Holdings when the market, sector & stocks become 
overbought. Execute in all market conditions.

2. Medium Risk Capital (35% of portfolio). Goal: Compound 10 - 
15% per month. Strategy: Sell Naked Strangles (& hedge whichever 
side is in the money). This is the "conservative" version of Jim 
Brown's "How to Trade Risky Internet Stocks without Risk" from 
the first Sunday in January. Execute in all market conditions.

3. High Risk Capital (15%). Goal: 100%+ during each earnings 
season. Strategy: Straight Calls & Puts. Execute in April, July, 
November (approximately; for example, start taking call positions 
mid March).

My "focus of effort" is my Medium Risk Capital. (In the Marines, 
a "focus of effort" was the main unit in an operation; all other 
units supported that unit, since its success was the key to 
winning that part of the battle). A 10% monthly return equates to 
a 213% annual return. A 15% monthly return equates to a 435% 
annual return. Jim says that you can get 25% monthly returns with 
the more aggressive versions of the strategy (ie, selling covered 
straddles, using maximum margin). I prefer to be more 
conservative and aim lower. If I exceed my expectations in any 
given month, that is fine. By focus of effort, I mean two things. 
First, if my efforts in Strategy 1 or 3 distract me too much 
(eg, if playing straight calls is too demanding), then I just go 
back to focusing on Strategy 2. The reason for this is that 
Strategy 2 is the real, long term money maker. With a 12%/month 
return, I make 310% per year. Compounding that return by two years
gets me into the range that I need to be financially independent. 
Moreover, Strategy 2 is scalable -- that is, I think that I can 
execute it with larger amounts of money, though, necessarily, I 
will need to spread the trades over a larger number of stocks. 
Secondly, my research and analysis efforts are focused on 
supporting Strategy #2. The key is watching all the indicators & 
charts every day to determine when the market, sector & stock is 
oversold/ overbought so that I can sell deep OTM Calls & Puts (on 
the same stock, where possible).

Strategy 3 is my core competency as an option trader. Recognizing 
the strength in a bullish phase, I want to be able to play 
earnings and split runs with directional strategies involving 
straight calls; I also want to be able to play down moves in the 
market with QQQ and EOX puts. These strategies brought me to the 
table, but I may have to abandon them in preference of strategies 
which will allow me to compound my portfolio more reliably.

Strategy 1 is the insurance policy that keeps me in business. Did 
you ever wonder why Microsoft keeps $20 billion in cash on its 
balance sheet? It is because Bill Gates went through several 
periods during the early days when he did not know whether he 
could pay his employees. That taught him an important lesson -- 
cash on the balance sheet is always good. As a trader in our 
local group said, the real way to measure your success in trading
options is not in how much money you make and keep in your options 
trading account; it is in how much you put into stable assets 
like cash and real estate. This is the strategy in which I sell 
VRSN puts 40 points out of the money with 2 weeks left in a 
cycle when the market has just put in a major bottom.

The return on Strategy 1 may not be very exciting compared to 
having QCOM Calls when that stock gaps up 150 points, but then 
again, I will never really have to worry about losing that 
capital either. Of course, I have to be prepared to buy the 
stock, but I only sell puts on stocks that I would like to own. 
In addition, in my LT Stock Account, I have some stock which I 
have owned since 1998 -- MSFT, VOD, CSCO, AOL, YHOO, HD. My 
strategy with those stocks was always to hold them for at least 
5 -10 years. I sold losers along the way. Of course, MSFT & CSCO 
do not pay a dividend -- or do they? I am reluctant to part with 
these stocks, for tax and other reasons. Nonetheless, I started 
to sell covered calls against these stocks in January at one of 
the obvious peaks in the market. For example, I sold MSFT Feb 120 
Calls when MSFt was at 112. I used the cash proceeds from these
calls to buy QQQ Puts to hedge the entire portfolio of stocks in 
what is known as a costless collar (a true costless collar would 
be something like the following example -- MSFT stock is at 105; 
sell the 110 call, and buy the 100 put, thus limiting both the 
downside and the upside at no cost). I already took the profit 
on that QQQ Put play, and the put position was of too small a 
scale to cover the entire downdraft. But it provided some 
positive cash flow, nonetheless.

From this point forward, I do not plan to buy stock (except to 
hedge a covered strangle in Strategy 2). I plan to purchase any 
long term shares by selling puts below support on oversold 
conditions. I don't mind if I never buy a share of stock -- I 
hope that I read the market, sector, and stock so well that every 
put I sell expires worthless. I doubt I am that good. Therefore, 
I diversify my put selling across several stocks and sell OTM puts 
with varying amounts of buffer zone between the stock and the 
strike price. In the case where I am put stock, I immediately 
will start planning on selling covered calls. If I pick good 
oversold moments to sell OTM puts, my entry points on 
fundamentally sound technology sector leaders like VRSN, BRCM & 
AFFX (they will change monthly) will be favorable, and I will 
probably profit by a rebound in the stock in many cases. When the 
VIX drops, the indexes go back over their 10 day exponential 
moving average (EMA), and the stock rallies, I will sell calls 
10 to 20 points out of the money. I will do that month after 
month until the stock is called away.

Alternately, I will exit the stock with stop loss orders, but I 
would prefer not to. Take VRSN for example. It has been one of 
my LT Stock holdings since Oct99. When it ran up to 210 at 
earnings in January, I sold Feb220 Covered Calls for 15. That 
equates to $1500 per 100 shares. The 100 shares were worth 
$21,000 at their peak. That is like the stock paying a 7% to 10% 
dividend every month. Of course, the other side of the argument is
that I lost over $5000 as the stock slid from 210 to 150 last week. 
That is a 29% drawdown on the stock. Most serious money managers 
would find that unacceptable and would sell the stock. I bought 
the stock at 58, though, and I recognize that it is in a 
hypergrowth phase characterized by extreme volatility. If I have 
a very good entry point, I don't mind holding a stock like VRSN. 
Month after month, I will sell covered calls against it. However, 
unless I get put to from a short put position, I plan to stay 
fully in cash as I execute Strategy #1.

This may sound like it is highly complicated and beyond the 
research capabilities of most investors. It does requrie 
monitoring at all times during the trading day, especially 
Strategy #2, which requires active hedging and un hedging. But 
the beauty of these strategies is that they are closely related 
in the background information needed to succeed. For example, I 
plan on monitoring a basket of stocks drawn from thestreet.com's
Tech30, OIN plays, the Money30 index, and the Wired40 index. I 
plan on using techniques outlined in Marty Schwartz' Pit Bull to 
determine oversold / overbought conditions in the market, the 
sector, and the stocks. 

Over the last month, I have essentially been training myself to 
think differently about my options plays. By learning these 
strategies, I have a broader toolkit to use in a variety fo 
different market situations. It is like training in the Marines, 
which was designed to prepare us to fight in all out war, or in 
peace keeping situations. As part of the cybercorp.com (just 
acquired by Schwab) website points out, "Trading is War." Though 
the analogy can be taken too far, trading is a contest of human 
wills, and the flexibility in thinking and conviction in 
execution required to be successful is essentially the same. In 
the last week, I sold my first 3 put positions -- VRSN Feb145 
Puts, AFFX Feb 210 Puts, and BRCM Feb 270 Puts. This morning, I 
closed out 2 of those three (VRSN & AFFX) for a profit, and let 
BRCM run, since it now has a nice 45+ point buffer from my strike
price. In the future, I will let the plays run longer, since time 
works in my favor in this strategy.

But the real adjustment is in mindset. Cash is no longer just 
cash. It is marginable buying power. It gives the leverage to 
sell OTM Puts, which can have the same effect as delivering the 
annual return of a T-Bill every month, month after month. Stock 
is no longer just stock. It is just a commodity, and I deal in 
the right to buy or sell that commodity. Volatility in a stock 
is no longer bad -- it is good, it is the quality which gives 
high value to the right to buy or sell that stock. Selling that 
volatility can give a dividend to a non-dividend paying stock 
like MSFT or CSCO. I don't just buy or sell a stock, I sell the 
right to buy or sell that stock, and I don't really care if I 
eventually buy or sell the stock. Interest rates are interesting 
to me since I will attempt to keep most of my assets in cash, but 
I am making my own interest rates by using the cash to sell 
options at critical junctures of fear and greed when those 
contracts stand the best chance of expiring worthless. I have 
gone from thinking of myself as the bare knuckled straight call 
player who fights through the oscillations of an uptrending or 
downtrending market to thinking of myself as the ninja who moves 
from point to point silently in the night, making promises to 
many, yet beholden to none...



An Osmotic Technical Point of View 

Why I turn off the Buzzz., Grandma and the Tube 

Whew! What a ride! Makes bare back bronco riding seem tame (it 
is really, bull riding is tough). I have not had this much fun 
since.....hmmm...let me see..oh ya, the last time it did this....
last week? 

The one thing that I was reminded of whole heartedly in the past 
few days is that like in real estate, there are three things that 
are important, location, location, location. With stocks and 
therefore options, it is price, price, price. If you would have 
listened to most of the talking heads last week and even this 
week, the sky had fallen and it would never rise above our knees 
ever again. That is why I check out MSNBC in the morning for a 
bit and then turn it off. Trading off you emotions and your gut 
are entirely different things. This is especially true for you 
newbies. Spend time on learning how to chart and don't watch too 
much of the tube. "It will rot your brain" as my grandma used to 
say. She was right! 

The charts were actually pointing the way the market was heading. 
Sure, it is always easy afterward but, take a look at CMGI for 
instance. It stopped right at $100. A very nice retracement and 
then the 3 day turned up and we were off to the races. This was 
an OIN pick. I had trading buddies who were certain that "it" was 
over. Well it might be any given day but, the prices were not 
saying so. You can never outsmart the market as the saying goes. 

But one of the hardest things to do still (at least for me) is 
when the chart says you have a turn around and it is time to buy, 
even when everything else is crumbling and you only see mostly 
red on your screen, is to actually buy. If you can do this, you 
can be well rewarded. 

I have been doing some digging that I would like to pass on to 
those of you who like doing your homework. While everyone has 
been lavishing attention on the Cable modem arena another area of
fast Internet access is DSL. Basically really fast modem speeds 
over the good old phone line. DSL allows as fast if not faster 
modem speeds than cable. The phone companies actually had this
 technology for quite awhile but did not push it. There was 
actually a single renegade salesman that can take most of the 
credit for getting DSL out the door (that is another neat story 
for another day). Dsl and Cable offer the "broadband access" 
that everyone is talking about. 

Some of these companies include Aware, Inc. (Nasdaq-AWRE); 
Copper Mountain Technologies, Inc. (Nasdaq-CMTN), DSL.net, Inc. 
(Nasdaq-DSLN); InterSpeed; (Nasdaq-ISPD); mPhase Technologies, 
Inc. (Nasdaq-XDSL); Netopia, Inc. (Nasdaq- NTPA); NorthPoint 
Communications, Inc. (Nasdaq-NTPT ); Rhythms NetConnections, 
Inc. (Nasdaq-RHTM); SBC Communications (NYSE-SBC ); and 
Westell Technologies, Inc. (Nasdaq-WSTL). 

While some of these stocks do not have options yet, many do. Take 
a look at the charts and you may just find a gem in there. I 
happen to be long both ISPD and DSLN. DSLN does have options and 
ISPD does not as of yet. This whole sector has a lot of room to 
run as exhibited by their earnings announcements and we could see 
a doubling or even quadrupling of stock prices on some of the 
better ones over the next 6 months or so. ISPN just announced 
earnings increased 395% year over year, not bad. Of course it is 
a new company, but, this should be indicative of what is to come 
for the group. Do some digging, there are some nugget in the 
details. Oh, and when you find them, let me know.... 

In a previous story I had noted that JDSU is purchasing ETEK for 
1.1 shares of JDSU stock for every 1 share of ETEK stock. So, 
ETEK should eventually be trading at 110% of the JDSU stock price. 
But in actuality, ETEK has been trading at 90% of the price of 
JDSU. Here is an update. Someone is beginning to notice! The 
spread between ETEK and JDSU is closing. They will eventually 
reach parity and beyond. 

Well, as one of my favorite all time comics says " I'm not 
scared". Here is the reason why, head cold medicine. Profits are 
more ethereal than a politicians promise these days, so, grab 
them while you can get them. Remember, it doesn't count until 
you close the trade and the money is in the account. 

Happy Trading
Contact SupportHarrison

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


EMIS $38.56 -0.56 (-1.06) Yawn!  If you are looking to cure 
a tough case of insomnia, we think we may have just the thing 
for you!  Emisphere has turned out to be a sleeper.  $40 seems 
to be providing strong resistance and though EMIS continues 
to visit this level, it has yet to make a breakthrough.  The 
volume?  Hardly worth mentioning other than to say that it has 
been low enough not to be worth mentioning.   Needless to say, 
this play simply lacks the momentum necessary to retain its 
position on our play list and therefore, we are kicking EMIS 
out of our bed.  

PEB $145.50 -1.06 (-19.50) You can probably take a look at 
PEB's loss for the week and guess why we are dropping it from 
our play list.  Since we have initiated our play on PEB last 
weekend, it has been headed south.  We have seen strong volume 
backing PEB's descent this week and though we did see a spike 
at today's close, it is not enough to convince us that PEB is 
ready to reverse its recent downward trend.  The good thing 
about this play was the fact that it never even gave us a 
chance to get on board.  There are a lot of possible plays 
out there and therefore we are going to move on.


ADBE $69.06 +7.75 (+11.50) Well if you are going to be wrong, 
then you might as well be REALLY wrong.  We jumped right into 
the teeth of a bear trap on this one as value investors gobbled 
up shares of this former technology favorite.  Educationally, 
this put play is a perfect example of why we use stops!  The 
rally came out of Merrill Lynch's upgrade to a Near-term Buy 
from Near-term Accumulate (why do they have to be so complicated, 
whatever happened to Buy or Sell?).  Adobe also rallied on the 
announced joint project with Shutterfly to build photographic 
printing technologies for digital images.


MUSE $172.88 +4.50 (+10.00) An encouraging move has occurred for 
the shares of Micromuse the past two days.  Granted, the NASDAQ 
has been on fire and we certainly would have liked to have seen 
a bigger move.  It appears that MUSE is attempting to break out 
of its recent trading range to the upside.  If this trend 
continues, look for MUSE to test that resistance level of $184.
Most of Thursday's rally in the Internet sector was concentrated 
in the e-commerce stocks following the Amazon earnings.  If the 
rally broadens out to include the Internet software companies 
then MUSE should be able to sustain a rally.  Yesterday, MUSE 
added another new client to its stable of Netcool users.  
Knology is a leading provider of bundled local and long distance 
telephone, analog and digital cable TV and high-speed Internet 
access to residential and small business customers in the 
Southeastern U.S.  The news item and market rally helped MUSE to
reach a high of $176.75 before pulling back into the close.  The 
loss of momentum was a bit discouraging but we will give MUSE a 
chance to work its way higher.  Support can still be found in 
the mid-$160's and it is critical that MUSE continues to trade 
above that level if it is going to make its next move quickly.

TQNT $192.00 +14.69 (+32.19) We have remarked several times that 
Triquint Semiconductor is fast becoming one of the new stock 
price leaders of its field.  The double whammy of being in a 
strong sector, Semiconductors, and selling to another strong 
sector, Wireless Communications continues to drive share prices 
higher.  What happens when you pour kerosene on a bonfire?  We 
certainly found out when TQNT not only got shareholder approval 
for the 2-for-1 stock split payable February 22nd but also 
authorization to increase shares 800% to give plenty of room for 
more splits in the future.  Possibly adding to the excitement in 
the shares of TQNT was the company's presentation today at the 
Banc of America Securities Technology 2000 Conference.  We have 
seen several stocks rally after presenting.  Technically, the 
rally of the past two days has seen a very significant breakout 
from the trading range consolidation we talked about on Tuesday.
Parabolic breakouts tend to slow down after three gap ups.  It 
is impossible to predict how much higher TQNT will go on this 
run.  If you are sitting on big profits you may want to employ a 
trailing stop strategy.  Whether you employ this strategy or not 
is entirely dependant on your individual risk profile.  By 
closing near its high for the day, look for TQNT to possibly gap 
up to test the psychologically important resistance level of 
$200, as long as the overall rally continues.  Support can be 
found all the back down to Wednesday's breakout point in the low 


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This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
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The newsletter staff makes every effort to provide timely 
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The Option Investor Newsletter         Thursday  2-3-2000
Copyright 2000, All rights reserved. 
Redistribution in any form strictly prohibited.


FRX $66.00 -0.56 (-3.25) Drug stocks have been pretty sedated 
the past two days as the destination for cash seems to be 
technology and Internet stocks.  Not to worry though, FRX has 
held its own and has not suffered any technical damage.  
Patience may be our watchword for this play.  Drugs might get 
going again with the announcement that Warner-Lambert has moved 
back to the negotiating table with Pfizer.  In the meantime it 
needs to be pointed out that FRX is sitting right on top of its 
uptrend line in the right side triangle formation.  The stock 
needs to hold here if it is going to take off from this very 
bullish formation.  If the stock can hold and rally tomorrow, 
a bullish position can be considered for a test of resistance 
at $69.  If it can get through that price and make a new high 
above $71, then FRX may be well on its way to a nice move.

VECO $60.50 +2.19 (+4.50) Selling keeps beating back the shares 
of Veeco as it keeps attempting to stage a significant rally. 
We are encouraged by the successful attempts to take out 
resistance at $60.  Yesterday's rally up to $64.50 looked like 
the breakout we were anticipating, but the lack of any follow 
through was disappointing.  We will give VECO another chance due 
to its decent performance today.  Be wary of support holding in 
the $57.50-$58.50 area.  The uptrend is still very well defined. 
Let's hope yesterday's rally was not a bull trap.  The quick 
selloffs are not surprising considering the overhead resistance 
dating back three years.  There could be a lot of people who 
have been stuck in this stock for awhile who just can not help 
themselves to sell when they get close to even despite the 
strong fundamental story that VECO seems to possess.  If we 
can get these "old" shareholders out of the way, VECO could 
experience a very nice run.

LLTC $102.00 +1.81 (+11.25) Come on Linear Tech!  Stop lumbering 
higher and get parabolic!  Wednesday's Play of the Day has moved 
higher and it did give us a nice entry point on Wednesday under 
$100, followed by a close above this always critically important 
price point.  With Semiconductor stocks flying the past two 
days we can not help but to be a little greedy being long one 
of the groups leaders.  While the NASDAQ was screaming in early 
trading today, LLTC suffered a very discouraging pullback.  We 
can only surmise that there was some big block selling that 
needed to be absorbed early today before LLTC could resume its 
move into triple digits.  It does look like we got the selling 
out of the way as the stock closed on the high end of its 
trading range.  We are perfectly happy to be long a stock that 
has made new highs two days in a row.  We need a third to keep 
our interest in the stock and maybe to peak the interest of some 
other momentum traders.  LLTC has established some very nice 
short-term support at $97 and is still in a very solid bullish 
technical pattern.  It appears that new positions can be entered 
on pullbacks that do not violate support.  Chasing new high 
breakouts appears to be a little dicey.

ICIX $46.13 +1.31 (+1.13) Slow and steady wins the race, right?  
At least it worked for the tortoise.  Although in this story, 
the tortoise and the hare are in cahoots.  As we have referenced 
in previous write-ups, ICIX owns over 80% of Web site application 
hosting company, Digex (DIGX), which IPO'd last July.  Today, 
DIGX reported Q4 earnings and came in $0.04 better than analysts 
had expected.  Digex shares shot up on the news and traded as 
high as $98.88 closing up over $11.  Now you would think that 
with over 80% ownership, ICIX shares would have been trading at 
a higher level today, at least above $50, but obviously, this 
was not the case.  Why?  Well, roughly 50% of the outstanding 
ICIX stock is shorted which is extremely high and may lead one 
to believe the company has some hidden troubles.  We do see a 
nice wedge forming as ICIX consistently tags higher lows and 
higher highs.  We could be poised for a nice breakout but...you 
see the dilemma.  ICIX has a lot of potential to be a great play, 
but apparently investors are a little leery.  This could limit 
the short-term picture for us but we will give ICIX some time 
to continue on its way.  It is on the right path after all, so 
we really can't complain too loudly.  In the meantime, ICIX's 
5-dma ($44.75) is doing a nice job of providing support.  The 
story behind the stock seems to be providing the real resistance.  
ICIX did trade up to a new 52-week high of $46.81 today.  Oh!  
And lest we forget to mention, we did call the company to try 
and confirm an earnings date.  We were told that there is no 
date set but they are expecting to announce toward the end of 
this month.  Therefore, we must note the possibility of an 
earnings run in the near future.

PMCS $229.69 +10.44 (+39.63) "It's good to be the king!" and 
it's good to be a Semi.  We can't help but just sit back and 
smile when we take a look at the last week for PMCS.  This has 
turned out to be a great play and we still have one more week 
before we will have to cut PMCS loose.  For those of you just 
joining us on this play, PMCS stock is set to split 2:1 next 
Friday the 11th.  We will be dropping this play prior to the 
actual split to avoid falling victim to a post split depression.  
Not only is the pending split a likely catalyst for this recent
climb, but PMCS is also basking in the glow of being in the 
right place at the right time.  PMCS has been following right 
along with the red-hot Semiconductor index this week.  The SOX 
traded to a new all time high today, closing up over 44 points 
at just above 870.  PMCS tagged a new high as well, trading up
to $141 in today's session.  PMCS looks to have encountered 
some resistance at $140.  PMCS could need to retreat some 
before finding support, the first being $222, backed further 
by $210.  Being that we have seen a gain of nearly $40 since 
last Friday, there is a chance that we are going to encounter 
some profit-taking in the near future.  We may have even seen 
the beginning of this with the pullback at today's close.  It 
is imperative that you use your stops to protect your profits!  
Confirm continuing momentum before making new entries. 

SILK $136 +1.88 (-26.00) After giving us quite a scare this
morning, SILK finally bounced at the 50-dma ($129).  If you
were willing to take a chance, the low at $125 provided a nice
entry point.  We had been concerned with the gains in SILK last
week, as they had come on rather light volume.  Gravity took
hold Monday morning, as SILK began its rather dramatic slide.
There has just been a shortage of buyers to take up the slack
as investors take profits from the prior 2 weeks.  Sitting very
near support at $129, SILK must prove itself by resuming its
move upwards.  Volume remains light (50-60% of the ADV), and
it will need to pick up if SILK is going to make a serious run
upwards.  The 10-dma ($150), broken earlier this week will
provide the next serious resistance for SILK.  If buyers return
and help scale this level, SILK could still make a run towards
the 52-week high at $177.94.  Another bounce near the 50-dma
would make for a nice entry, but make sure the buyers are
returning.  This is the last level of support for SILK before
we let it go.

VOD $61.50 -1.50 (+6.88) To the victor go the spoils!  VOD had
run up nicely this week on increasing volume, as investors
anticipated a successful outcome to the company's hostile
takeover bid for Mannesmann.  When the news came out today that
the two companies had reached an agreement, VOD opened more than
$7 below yesterdays new 52-week high of $63.63.  As investors
digested the details of the agreement, VOD staged a very nice
recovery, coming back to close with a loss of only $1.  The
all-stock transaction, now valued at over $190 billion, will
produce the largest phone business in Europe.  With about 10
percent of the world's mobile phone customers, the combined
company will also dominate mobile Internet services.  VOD will
likely continue higher from here, although there may be some
profit-taking in the near term.  Look to enter new positions
on pullbacks as VOD marches further into blue-sky territory.
VOD should continue to find support near $58, further supported
by the 10-dma at $57.25.  More conservative players may want 
to wait for buyers to push shares through yesterday's high of
$63.63 before jumping on board.  As always, protect your profits
with stops; it would be a shame to give back your profits on
such a great play.

PSIX $95.44 +6.38 (+14.81) What a nice start to our combined
split and earnings play.  Moving up first thing yesterday, the
move continued unabated this morning.  Helped by the strength
in the NASDAQ and the Internet sector, PSIX is garnering
investor attention again.  Focusing on the split set for next
Friday, buyers look to be setting their sights on the 52-week
high ($107.19), set earlier this month.  The company is now
reporting that earnings will not be released until the week of
February 21st, although the actual date has not been set.  PSIX
should be supported at the $89 level, with the 10-dma now at
$89.50.  A drop to this level is buyable, but wait for the
bounce.  Aggressive traders may want to leg into new positions
on continued strength; just remember that nothing moves in a
straight lines, and profit-taking is a natural part of the
cycle.  As we've mentioned in the past before, the key to a
profitable trade is a good entry point, backed up by a prudent
stop loss.

CMGI $124.50 +5.00 (+19.00) We couldn't have timed this call 
play any better if we'd had a crystal ball.  After the rally 
took hold following the second bounce off $100 on Monday, 
there's been no stopping the momentum.  The money just poured in 
from the sidelines to buy this stock after traders got the green 
light from Greenspan yesterday.  Prudential also gave their 
blessing with a Strong Buy reiteration on Tuesday.  In addition, 
the analyst firm raised CMGI's 12-month price target to $216 
from $200.  Technical resistance, which was at $120, has now 
become near-term support.  Support is firmer at the 5-dma 
($115.50).  Tomorrow we face overhead opposition at today's new 
all-time high of $125.  Look for intraday pullbacks to get an 
entry into this momentum play on the climb.  Remember to pay 
close attention to market sentiment in this volatile 

BGEN $102.69 +8.69 (+10.44) BGEN continues to trade more like
an Internet or tech stock that has provided investors with wild
swings and volatility.  The Biotech company shot up to $99 only 
to fall to $92 in the first hour of trading today.  It began to
look as though our play may rollover and play dead.  The stock 
which had helped lead the Biotech sector, was beginning to look
and feel pretty sad.  The recent news concerning their drug 
AVONEX was too positive for this to be happening.  IMNX and
BGEN seem to be doing battle over which company will provide
the best drug, for the treatment of multiple sclerosis.  IMNX 
may have won the race today, gaining 13%, but BGEN certainly
held its own.  After a brief bounce and decline back to $92 
again, BGEN caught fire and ended the day +8.69 or 9.2% higher
on strong volume of 4.48 million shares.  Technically the fact
the $92 area held on four different dips the past two days is
very positive, as well as the strong volume the last thirty 
minutes of the session.  Support is at $98.

NTAP $114.63 +1.50 (+15.44) We mentioned Tuesday that NTAP was 
in a trading range.  The networker is now in the upper end of 
that range and appears to be poised to break out through the 
$115 level.  Actually NTAP ran smack dab into $115 Wednesday and 
fell back to $106 late this morning.  Buyers came to the rescue, 
bidding NTAP back up to $114.63 at the close.  Closing near its 
high today is a positive for our play.  If you have a position, 
$112 is an intraday support level for NTAP, which would be a 
place to move your stops.  With the jobs report due out in the 
morning NTAP and the broader markets could go either way.  If we
do see a decline to a support area followed by a bounce, you can
always re-enter a new position.  A good jobs report and NTAP 
could be off to the races to challenge its high set back on 
January 21st.  NTAP reports earnings Feb 15th and this could 
be the beginning of a great earnings run. 

BRCM $323.56 +8.13 (+39.56) The momentum of our split run 
play continued the past two days.  BRCM gained over $26 while
coming within $2 of its high set in the middle of January.  
BRCM is in the right sector, at the right time and has a split 
approaching so we believe the chip company will continue higher.  
Volume the past two days has been strong.  According to William 
Ruehle, Broadcom's CFO, BRCM products are in 90% of cable set-
top boxes shipped.  With that news hitting the markets it's no
wonder investors want to own a piece of this rock.  If you have
a position in our split-run play, support is found at $320 and
$310.  BRCM split 2-for-1 a week from Monday, so we have plenty
of time for this play to continue.
COVD $70.38 -0.75 (-2.81) Our play in COVD got off to a bit of 
a rough start.  For those wanting to target shoot, a bounce off
the $68 area early this afternoon may have provided a good entry
point for this play.  If you did enter COVD, use that support 
level as a guide for staying with the play.  We believe COVD will
begin to climb back up, as the recent support from analysts 
should provide some strength for this play.  COVD has drifted 
lower for most of the past two sessions but the volume has been 
very light, indicating the decline is probably just profit-
taking.  Earlier this week COVD announced the availability of 
its DSL services in Richmond and Norfolk Virginia.  COVD is 
aggressively building its presence in metro areas across the 
United States and we believe this pullback really should be 
viewed as a buying opportunity.    

MFNX $73.00 +0.13 (+7.84) While $62 seems to be providing rock-
bottom support, $66 has worked pretty well, and $70 has held 
since Tuesday.  However, true to form, with no volume and a lack 
of news, MFNX remains squirrelly.  The low volume also translates 
to lack of upward pricing pressure.  A breakout over $75 with 
volume is really what MFNX needs, but that will only come with an 
event on the horizon, like earnings for instance.  We are still 
waiting for IR to confirm an earnings date, but it won't likely 
occur before February 15.  If you are adroit at herding cats, you 
might be able to nail a great entry at one of the above levels of 
support, thought our best suggestion is to wait for the $75 
breakout.  If you do that, just make sure the market is trading 
in your favor.  Until we have an earnings date, MFNX may continue 
to drift like a superball in zero gravity.  Even then it will be 
subject to move without relation to the rest of the market until 
an event or volume provides the gravity necessary for a sustained 
rise.  We're not saying "don't play".  Just know the risks.  In 
case we forgot to mention it, MFNX is a split candidate from $55-

LU $56.50 +1.00 (+1.38) Do as we say and we'll let you live - 
that's the message we should be sending LU tonight.  Ever since 
finding a bottom following a crummy conference call at earnings, 
LU has been asleep on the job, though it should be offering a 
prayer of thanks for the $1 gain in today's last hour of trade.  
Otherwise we'd be carrying LU out in a pine box tonight.  That 
said, we need to see LU punch through near-term resistance of $58 
with strong volume.  If there is any good news, it's that LU 
found support at its 10-dma of 55.31.  While it doesn't look like 
it will drop much from here, if at all, the $64 K question is 
will it go up?  Yes, but only if volume pushes it there.  Volume 
is the key.  LU is a conservative stock that will allow you to 
sleep at night, but without a price advance tomorrow borne of 
volume at least 20% over the ADV, it won't make us any money.  
It is a bit more rare that we offer this suggestion, however you 
may want to consider a limit/buy order as your target rather 
than the resistance outlined above.


BBY $52.06 +2.31 (+3.31) BBY may be coming back to life.
Whether the catalyst is the benign decision from the FOMC
meeting yesterday, or the company's announcement of an increased
stock buyback, we need to exercise caution.  Bouncing strongly
at support ($48) early yesterday afternoon, BBY saw buying
interest pick up into the close.  Gaining ground again today,
our put play made it onto the probation list, pending the
outcome of the battle between buyers and sellers.  The
battlefield is centered near $52, the convergence point of the
30-dma ($52) and the 50-dma ($52.44).  If BBY rolls over from
here, then it is an entry point.  A break through this level
to the upside will indicate that buyers have returned and will
spell the end of our play.  

UAL $57.94 -1.06 (+0.06) Yesterday we saw a charge through the 
10-dma on strong volume in the afternoon session.  The close 
above this technical indicator warned of a pending revival.  As 
it turned out today, the 10-dma proved to be overhead resistance. 
The multiple bounces off this mark intraday provided the 
ultimate validation.  However $56.56 is holding firm as near-
term support and this relative strength is discouraging.  UAL 
needs to weaken and penetrate this opposition or we'll be 
heading for greener pastures.  There's no real news out there to 
push the stock down.  Although it was mentioned on the wire that 
UAL will spend $70 mln to add more legroom for its coach flyers.  
The company will remove 7200 seats from 707 planes to provide 
customers with three to five more inches of space.  

IPG $49.00 +0.69 (+2.00) Bounce it did!  IPG followed its recent 
pattern of a few days down followed by a few days up.  Overall 
IPG should now begin to trend lower.  The clue?  During its 
attempt to climb higher the past few days, IPG consistently hit 
a wall of resistance at the 10-dma (now at 49.21).  Plus the 
volume levels remained moderate further signifying that there is 
not much in the way of power behind this rally.  Bottom support 
still remains at Monday's intraday low of $45.25.  Because IPG 
couldn't move through the 10-dma this level now serves as a new 
entry point.  Yet the more conservative trader may want to wait 
for a descent to the 5-dma ($47.70) for better confirmation.  


EBAY - eBay Inc $165.00 +14.00 (+17.44 for the week)

eBay is an Internet auction service in which users buy and sell 
personal property.  The  sellers pay a fee to have heir items 
placed on the company's Web site and the buyers get to browse 
and make bids on the merchandise.  If an item sells, eBay 
charges the seller a percentage of the closing price.  The 
company's rivals in the auctioning arena are Yahoo! and 

We see EBAY emerging as a powerful momentum play.  With the Fed's 
expected rate hike of 25 basis points now behind us, the runway 
is clear for interest-rate sensitive stocks to take off.  The 
delivery of a solid earnings' report from Amazon.com (AMZN) also 
helped traders cozy back up the these high-flying Internets.  
AMZN's "focus on profitability" further reminded investors that 
the e-tailing business model does work.  Retracing a bit to 
January 26th, EBAY rose a sharp 11.7%, or $16.06 but slammed 
into previous resistance at $158.75.  The spike was in response 
to its delivery of solid 4Q earnings at $0.04 p/s which beat 
estimates by a significant $0.02!  Of course there was a slew of 
positive analyst comments to boot.  Robertson Stephens, Lehman 
Brothers, and DLJ all reiterated a Buy recommendation with the 
latter firm "calling EBAY a core Internet holding and saying it 
should outperform much of the Internet sector for the year".  
Two days later Paine Webber started coverage with a Buy rating 
citing eBay is "fundamentally changing the way transactions take 
place tend to be the best investment opportunities as these 
business models are based more on technology and software 
platforms, rather than fixed assets".  The firm also issued a 
$225 price target.  Nonetheless, EBAY channeled primarily 
between $145 and $155.  The current changed today.  EBAY's 
increased volume and importantly the break through near-term 
resistance of $158.75, signaled to us the start of a potentially 
profitable run.  The stock's close above it's 5-dma ($152.91) 
and 10-dma ($149.69) as well as its finish in the proximity of 
the intraday high at $166.38 further characterizes a bullish 
sentiment.  Today too W.R. Hambrecht commented that eBay 
"represents a truly unique business that cannot be easily 
replicated online and is, for all intents and purposes, 
impossible to replicate offline" and initiated a Market 
Outperform and a $225 price target.  If we follow the cliché 
that old resistance become new support, then look for EBAY to 
make itself comfortable at $158 and $160 on a pullback.  I know 
many of you have heard this before, but a reminder never hurts.  
Any Internet play is HIGH-RISK and VOLATILE so please proceed 
with caution.  It's also important to know your tolerance for 
wide intraday swings.  Use stops carefully.

In a recent partnership with eBay, China.com (CHINA) announced 
it will promote eBay Chinatown to Internet audiences throughout 
Asia.  Today eBay came under scrutiny for allowing Ku Klux Klan-
related products on its site.  This follows earlier criticism of 
the sale of Nazi items that can be obtained on the auction site.  
eBay spokesman Kevin Pursglove responded that the company is 
"very much aware of some of the criticism that has been raised 
about many of these items, but eBay doesn't want to play the 
role of censor".

BUY CALL FEB-160 QXB-BL OI=1704 at $12.00 SL= 9.50
BUY CALL*FEB-165 QXB-BU OI= 717 at $ 9.13 SL= 6.75
BUY CALL FEB-170 QXB-BV OI=1734 at $ 7.13 SL= 5.50
BUY CALL FEB-175 QXB-BX OI=2122 at $ 5.63 SL= 4.00
BUY CALL MAR-170 QXB-CV OI= 151 at $15.75 SL=12.25
BUY CALL APR-175 QXB-DX OI= 164 at $14.13 SL=11.25

Picked on Feb 3rd at    $165.00    P/E = 2895
Change since picked       +0.00    52-week high=$234.00
Analysts Ratings      9-7-6-0-0    52-week low =$ 64.00
Last earnings 01/00   est= 0.02    actual= 0.04
Next earnings 04-24   est= 0.03    versus= 0.04
Average Daily Volume = 3.34 mln


BCE - BCE Inc. $109.63 +2.75 (+11.00 this week)

BCE is Canada's largest communications company.  Through its 
operations in communications services, BCE provides residence 
and business customers in Canada with terrestrial and wireless 
communications products and applications, satellite 
communications and direct-to-home television services, systems 
integration expertise, electronic commerce solutions, Internet 
access and high-speed data services, and directories.  Abroad, 
through Bell Canada International's investee companies, BCE 
provides communications services to more than 6 million 
customers in Asia and Latin America.  BCE also has an extensive 
international presence through its 39% ownership of Nortel 
Networks, a network designer and builder of communications 
networks, as well as through Teleglobe, an international 
telecommunications carrier. 

Don't let the Canadian part fool you.  This play is really about 
Nortel Networks in which BCE is about to spin off 95% of its 
ownership, or 39% of Nortel as a dividend to BCE shareholders.  
Here's the math.  BCE has a market cap of about $63 bln.  NT has 
a market cap of about $127 bln.  With a 39% interest in NT worth 
about 50 bln., the market is valuing the remainder of BCE at only 
about $13 bln.  The intent of the spin-off is to further unlock 
the value of BCE, which also own 80% of Bell Canada, Canada's 
largest phone company with over $9 bln in sales.  For every share 
of BCE owned, shareholders will receive .78 shares of NT (for 
every $100 of BCE, shareholders will get the equivalent of a $78 
dividend in the form of NT shares).  In short, BCE is way too 
cheap and should be considered a value/arbitrage play based on 
Nortel's growing value, and the market's realization that the 
remainder of BCE is more valuable too.  Technicals look great.  
Volume is rising.  So is the price.  Today, BCE set a new high 
on volume approaching two times the ADV of 731K shares.  On the 
chart, BCE has been channeling up with higher lows and higher 
highs.  If channel history repeats itself, there is a strong 
likelihood that BCE will fall back to the $102 to $105 range, 
which would also make a good target at which to shoot.  News that 
the spin-off is official should provide a bit more zip to the 
issue, which puts our bias at $105 rather than $102.  Otherwise 
you can pick your own target, or wait for another volume swell 
to carry BCE over $110.

The news is above, but note that Merrill last week raised their 
rating from Accumulate to near-term Buy.

BUY CALL FEB-105 BCE-BA OI=223 at $6.13 SL=4.25
BUY CALL FEB-110 BCE-BB OI=621 at $4.63 SL=2.75
BUY CALL FEB-115 BCE-BC OI=105 at $2.69 SL=1.25
BUY CALL MAR-110*BCE-CB OI=215 at $8.63 SL=6.50
BUY CALL MAR-115 BCE-CC OI=  2 at $6.50 SL=4.75 low OI

Picked on Jan 16th at $109.63     P/E = 19
Change since picked     +0.00     52-week high=$109.88
Analysts Ratings    4-4-0-1-0     52-week low =$ 38.31
Last earnings 01/99  est= N/A     actual= N/A
Next earnings 04-00  est= N/A     versus= N/A
Average Daily Volume =  731 K


SNDK - Sandisk Corp. $135.06 +0.16 (+17.13 this week)

What's in a name?  SNDK provides computer storage sans disk.
The company is a leading provider of flash memory storage
devices - integrated circuits that retain data when power is
off.  The company is involved in all aspects of flash memory
process development, chip design, controller development, and
system-level integration.  SNDK has customized its products 
to address the needs of many emerging applications in the
consumer electronics and industrial/communications markets,
including digital cameras, smart phones, personal digital
assistants (PDA), and MP3 portable music players.

Benefiting from the tremendous growth in demand for storage 
for portable electronic devices, SNDK has been marching
steadily upwards since early January.  Announcing stellar
earnings on January 26th, the company further rewarded its
investors by announcing a 2:1 stock split payable on February
22nd.  Jumping up sharply on the split news, SNDK has spent the
last week banging its head on resistance at $137.  Intra-day
support is building at $129 with stronger support found near
the $120 level.  Volume this week has remained well above the
daily average of 925 K, and with the intra-day lows moving
higher, SNDK may be ready to break out to new highs.  As long
as volume remains strong, a break through resistance is buyable
as is any bounce near $129.  With over 2 weeks until the split
takes place, there is not a lot of time left for entry points 
and a breakout over $140 should be considered for an entry.

Sandisk continues to improve its market position, announcing
today that it will supply CompactFlash memory cards for the
new Hewlett Packard PhotoSmart C618 and C912 digital cameras.
Nelson Chan, senior VP for marketing at SNDK said, "HP's
decision to use SanDisk CompactFlash memory cards in its most
advanced digital cameras demonstrates the capability of the
SanDisk CF card to support not only high-resolution image
storage, but also next generation features such as continuous
shooting and audio recording.". 

BUY CALL FEB-130*SWQ-BF OI=272 at $13.88 SL=11.25
BUY CALL FEB-135 SWQ-BG OI= 11 at $11.25 SL= 9.00 low OI
BUY CALL FEB-140 SWQ-BH OI= 89 at $ 9.13 SL= 6.75
BUY CALL MAR-135 SWQ-CG OI=  0 at $19.50 SL=15.25 Wait for OI
BUY CALL MAR-140 SWQ-CH OI= 16 at $17.63 SL=13.75

Picked on Feb 1st at  $135.06     P/E = 139
Change since picked     +0.00     52-week high=$140.38
Analysts Ratings    1-3-0-0-0     52-week low =$17.00
Last earnings 01/00 est= 0.22     actual= 0.30
Next earnings 04-26 est= 0.26     versus= 0.15
Average Daily Volume =  925 K


GBIX - Globix Corp. $38.00 -2.94 (-7.84 this week)

Globix Corporation is a leading provider of Internet 
connectivity and advanced Internet services for businesses 
in the United States and Europe.  Through its high-speed, 
fault-tolerant, fiber-optic network and state-of-the-art 
Internet Data Centers in New York City, Santa Clara, and 
London, Globix delivers superior reliability, security and
performance to companies using the Internet to deploy mission-
critical business strategies.  Cutting-edge applications 
include Co-Location, Web Hosting, Dedicated Access, Streaming 
Media, E-Commerce and Internet Security. 

Too much, too fast looks to be the culprit in this case of 
stock decline.  Allow me to recreate the scene.  Globix Corp. 
had spent a good deal of time trading in the $10 (split 
adjusted) neighborhood before a combination of good news, a 
2:1 split announcement, and some strong backing from various 
analysts had the shares moving upward.  GBIX stock split 2:1 
before the open on December 31st and just ten days later, GBIX
announced yet another 2:1 split.  On January 12th, GBIX announced 
plans to seek approximately $250 million in a private offering 
of Senior Notes.  All of this news had GBIX moving up rapidly 
until last week, when the first hole in the bubble appeared.  
It was time for GBIX to announce earnings after the close on 
January 27th.  GBIX came in 14 cents per share under analysts
expectations.  GBIX closed down just over $11 the following day 
and before GBIX had the chance to find its feet, the second 2:1 
stock split occurred before the market open on February 1st.  Now 
GBIX is trying to recover from a classic case of the post split 
blues times two and a sour earnings report.  Ouch.  Needless to 
say, we are betting that there is more downside to come in this 
story.  GBIX has violated a good deal of support in a relatively 
short period of time and is now looking up at some rather 
formidable looking resistance at $43, $44 and $48. Near term 
support is harder to peg for GBIX, largely due to GBIX's rapid 
ascent in anticipation of the splits.  The $38 level did try and
provide some weak support today, and if you will notice GBIX did 
close right on that number.  Watch for GBIX to trade through.  
The next support level looks to be right around $30.  We saw 
volume 4 times the daily average backing today's nearly 3 point 
drop, a good indication that there are plenty of investors 
looking to dump their shares of GBIX.  It looks like the bulls 
that have been running GBIX have some tired feet and are willing 
to turn things over to the bears for bit.    

BUY PUT FEB-45 GUI-NI OI=0 at $6.63 SL=4.75
BUY PUT FEB-40*GUI-NH OI=8 at $3.63 SL=1.75

Average Daily Volume = 509 K


PGR - The Progressive Corporation $60.81 -0.94 (-1.94 this week)

In business since 1937, Progressive is one of the nation's 
largest auto insurers.  Progressive offers all types of vehicle 
insurance and property-casualty insurance through 30,000 
independent agencies, the Internet and through affiliate 
programs.  PGR is a holding company for 82 subsidiaries.  PGR 
also has one mutual insurance company affiliate.

When we last visited PGR in December we noted that the stock was 
dropping due to concerns about an increase in property claims 
following Y2K "disasters".  January 1st has come and gone, there 
were not any riots and the stock is still going down.  There 
has to be some underlying problems.  One problem is the 
macroeconomic event of higher interest rates.  By being one of 
the largest insurers of automobiles in this country, PGR is 
particularly vulnerable to a slowdown in the purchase of high 
ticket items like automobiles.  Exactly what the Fed is 
targeting.  To add misery to the company's interest rate woes 
was the earnings report announced on January 25th.  PGR reported 
a 95 percent drop in fourth quarter operating profits, 
substantially below analysts estimates.  The company blamed a 
huge increase in automobile claims from the damage caused by 
Hurricane Irene.  Operating income was a paltry $.06 per share 
vs. $1.38 a year ago.  The Street was looking for $0.21.  After 
the earnings Prudential initiated coverage with a Neutral 
rating (why bother, hardly a ringing endorsement).  You would be 
hard-pressed to find a stock in a more well defined downtrend 
than Progressive.  Guess we should have recommended leap puts 
back in December.  New put positions could be placed as long as 
PGR does not take out any previous day's high.  If that happens, 
a little patience may be order to see how far the stock will 
bounce.  Failure to take out resistance may be a good 
opportunity to put on a bearish position on this stock that 
seems to be heading lower.

BUY PUT FEB-65*PGR-NM OI= 283 at $5.75 SL=4.00
BUY PUT FEB-60 PGR-NL OI=1205 at $2.25 SL=1.25
BUY PUT MAR-60 PGR-OL OI= 104 at $3.63 SL=1.75

Average Daily Volume = 380 K


VOD - Vodaphone AirTouch $61.50 -1.50 (+6.88 this week)

Formed when the UK's Vodaphone Group bought US wireless
provider AirTouch Communications in 1999, VOD operates mobile
phone networks offering voice messaging, paging, and data
services.  With the most mobile phone subscribers in the world,
(31 million and rising), VOD is a giant in the world of wireless
phones, holding the #1 position in the UK and the #2 position
in the US.  The company continues to expand at aggressive pace,
having agreed to combine with US wireless carrier Bell Atlantic,
and still pursuing its takeover bid for Germany's Mannesman.

Sunday's Write Up

Reminiscent of watching two 5-year olds argue over their
favorite toy, the endless bickering between VOD and Mannesmann
is becoming tiresome.  We're glad it will be over one way or
the other when VOD's buyout offer expires on February 7th.
The VOD management team continues to woo Mannesmann
shareholders, but no amount of concessions seems sufficient
to coerce the Mannesmann management team to abandon their
go-it-alone strategy.  The latest maneuvering has Mannesmann
trying to build alliances in the internet world; making the
case that Mannesmann is also an internet company, while VOD
has no internet presence (see news below).  All of this
wrangling has had little affect on VOD shares, as they trade
between $54 and $58 on average volume.  Entries can still be
considered when prices bounce off of support at $54, but more 
conservative investors may want to wait for a convincing break
through the upper end of this trading range.  VOD will likely
remain rangebound until the resolution to this battle becomes
apparent.  This will likely continue to be a news-driven play,
but general market weakness could still torpedo our play.  As
such, play with caution, and keep your stops in place.

Concerning speculation about a deal with AOL, Mannesmann
confirmed that integrated online services play a key role
in the company's strategy, and that they have been talking to
several different Internet companies about possible
collaboration.  Also on Friday, Mannesmann announced a joint
venture with Deutsche Bank, launching a new European service
that turns phones into personal bank tellers by combining
telephone and bank accounts.  Mannesmann hopes the venture,
called Tele-Commerce Bank, will bolster the company's
e-commerce strategy and strengthen its defense against VOD's
$156 billion hostile takeover bid.

Tuesday's Write Up

To the victor go the spoils!  VOD had run up nicely this week 
on increasing volume, as investors anticipated a successful 
outcome to the company's hostile takeover bid for Mannesmann.  
When the news came out today that the two companies had reached
an agreement, VOD opened more than $7 below yesterdays new 52-
week high of $63.63.  As investors digested the details of the
agreement, VOD staged a very nice recovery, coming back to close 
with a loss of only $1.  The all-stock transaction, now valued 
at over $190 billion, will produce the largest phone business 
in Europe.  With about 10 percent of the world's mobile phone
customers, the combined company will also dominate mobile 
Internet services.  VOD will likely continue higher from here, 
although there may be some profit-taking in the near term.  Look 
to enter new positions on pullbacks as VOD marches further into 
blue-sky territory.  VOD should continue to find support near 
$58, further supported by the 10-dma at $57.25.  More 
conservative players may want to wait for buyers to push shares 
through yesterday's high of $63.63 before jumping on board.  
As always, protect your profits with stops; it would be a shame
to give back your profits on such a great play.

BUY CALL FEB-50 VOD-BJ OI=3254 at $12.13 SL=9.50
BUY CALL FEB-55 VOD-BK OI=2501 at $ 7.63 SL=5.75
BUY CALL FEB-60 VOD-BL OI=5101 at $ 4.38 SL=2.75
BUY CALL APR-55*VOD-DK OI=2121 at $11.00 SL=8.75
BUY CALL APR-60 VOD-DL OI= 706 at $ 7.88 SL=6.25

Picked on Jan 18th at    $57.50    P/E = N/A
Change since picked       +4.00    52-week high=$63.63
Analysts Ratings      3-3-2-0-0    52-week low =$33.21
Last earnings 12/99   est=  N/A    actual=  N/A
Next earnings 06-08   est= 0.42    versus= 0.34
Average Daily Volume = 3.90 mln


Bond Market Blues..

Wednesday, February 2

The markets paused for a day of consolidation as the Fed raised
interest rates by a quarter of a percentage point and forecast
more inflation-taming rate hikes in the future. The Dow Jones
Industrials closed down 37 points at 11,003, capping a two-day
recovery. Technology stocks advanced during the session, driving
the Nasdaq Composite Index 21 points higher to 4,073. The S&P 500
Index was unchanged at 1,409. Advancing issues led declines 16 to
13 with 1.03 billion shares traded on the NYSE. New lows outpaced
new highs 128 to 35. The benchmark long bond surged 1-27/32, with
the yield falling to 6.29%.

Tuesday's new plays (positions/opening prices/strategy):

Pfizer     PFE   MAR40C/FEB40C   $0.62   debit   calendar
Covance    CVD   FEB12CC/12NP    $12.25  debit   covered-combo
Pennzoil   PZL   APR10C/FEB12C   $1.81   debit   diagonal

Portfolio plays:

Today's market was dominated by the anticipation of a change in
interest rates. The central bank's rate-setting committee avoided
the 50-basis-point spike that many analysts had feared, but put
investors on notice for future increases by warning that inflation
was the biggest threat to the booming economy. Traders accepted
the move without malice and analysts commented that technology
stocks will continue to rally despite a rising interest-rate

The big winner in our portfolio was Triquint Semiconductor (TQNT).
Today the stock leaped $19 after company officials announced that
stockholders approved an increase in TQNT's authorized shares. As
a result, TriQuint will effect a previously announced two-for-one
stock split in the form of a stock dividend. Our bullish position
at $140 is expected to finish at maximum profit. Another big mover
was BCE Incorporated (BCE). The Nortel Networks (NT) parent rose
almost $8 after shares in Nortel jumped in late trading. Rumors
of higher-than-expected growth in the firm's red-hot fiber-optic
network gear sector and a re-weighting on the Toronto Exchange
helped boost the issue. BCE recently said it planned to spin off
94% of its stake in the company and any rally in NT will benefit
the parent company. Our bullish debit spread (FEB75C/85C) returns
maximum profit above $85.

A number of Internet and semiconductor stocks rallied during the
session and our top performers were well-known issues. Emulex
(EMLX) fought back from recent losses to finish $6.43 higher at
$106.62. The cost basis in our recent covered-combination is near
$95. Siebel Systems (SEBL) is another slumping issue that appears
to be making a comeback. Today the stock rallied $6 to close at
$96.31 after a bullish forecast at the Banc of America Securities
Technology Week 2000 conference. Our debit position (FEB85C/95C)
achieves maximum profit above $95. Industry leading Motorola (MOT)
was in the news and on the leader board with an $8 move to $144.
The telecom giant made it easier to shop on the move by unveiling
the market's first secure virtual credit card solution for making
online purchases from mobile phones. The system combines virtual
credit card technology from Trintech for secure and convenient
online purchasing with wireless devices. Our LEAPS/CC's position
(LJAN105C/F135C) has doubled in value since its inception last

Adobe Systems (ADBE) was Wednesday's big surprise, rising $5 to
a recent high near $61. Unfortunately, the position is one of the
few that has yet to reach profitability. This new rally may be the
beginning of the end of that dilemma. British-based mobile phone
company Vodafone Airtouch (VOD) closed above the $60 level, a new
all-time high on news the merger with Mannesman may be coming to
a favorable conclusion. A successful pact would end a three-month
battle for dominance of mobile communications in Europe. The most
difficult decision with this position is whether to initiate an
upside adjustment, based on recent gains, or wait for the final
announcement. The original position (LJAN45C/FEB50C - $7.75 debit)
is profitable but begins to lose potential above $55. It may be
best to simply wait for the final outcome and hope the stock does
not continue much higher in the short-term. Another candidate for
roll-up, General Motors (GM) slid almost $4 today after officials
at the company said Chairman and Chief Executive Jack Smith will
step down. The move provided us a brief respite from the need to
contain an upside break-out. Now it appears the issue will remain
in the $80 range, an area that provides maximum profit in our long
term position (LJAN75C/FEB80C).

Thursday, February 3

Financial stocks and blue chip companies fell amid instability in
the Treasury market while technology issues powered higher. The
Dow rose 10 points to 11,013, rebounding from losses early in the
session. The technology-heavy Nasdaq Composite rocketed 137 points
to end at 4,210. The broader S&P 500 Index was up 15 points to end
at 1,424, the highest level since January 24. Advancing stocks
outpaced declines 2 to 1 on the Big Board. The NYSE recorded more
than 1.11 billion shares traded with 69 stocks hitting new highs
and 79 at new lows. The 30-year bond was up 1-31/32, dropping the
yield to 6.14%.

Portfolio Plays:

It was another booming day for technology issues and the majority
of stocks in our portfolio moved higher with the group. The big
winners were all market-leading issues and the top performer was
Siebel Systems (SEBL) with an incredible $9 rally. The move comes
on the heels of a recent slump and appears to be in anticipation
of their quarterly earnings report, due out next week. Today the
company announced a deal with i2 Technologies (ITWO) to provide
an unmatched B2B solution that is intended to enable companies to
gain a powerful complementary suite of customer management and
fulfillment solutions. Apparently investors were in favor of the
pact. Another big mover was Emulex (EMLX), climbing $5 to $111.50
in a third consecutive day of gains. Our new covered-combination
profits with the stock above $95. Lets hope the rally continues.

A number of long-term issues also participated in today's rally.
Motorola (MOT) was again the dominate stock in the portfolio,
rising $8 to a recent high at $152. The move followed news the
company had signed a $1.5 billion contract with Turkish wireless
phone system operator Telsim to expand its wireless telephone
network. Under the three-year contract, which Motorola said was
its largest such deal, Motorola will provide infrastructure,
handsets and services for Telsim's global wireless system. The
$1.5 billion includes about $100 million worth of Web-enabled
handsets, which allow users to access the Internet from wireless
phones. Adobe Systems (ADBE) continued its ride on the comeback
trail, climbing almost $8 to end just below $70. Today the stock
was upgraded to intermediate-term BUY by Merrill Lynch analyst
Jay Vleeschhouwer. The new price target is $90 and that suits us
just fine. Vodaphone (VOD) finally announced that Mannesmann AG
of Germany has agreed to their $160 billion offer in a deal the
two companies are calling a merger. The companies are expected
to announce a pact in which Mannesmann will control 49.5% of the
merged company, while Britain's Vodafone, the world's largest
mobile communications company, will control 51.5%. Based on the
news and today's quick rebound from an opening slump, we decided
to adjust our bullish LEAPS/CC's position one strike higher and
out to the month of March. The move required an additional debit
of $2 but provides $3 of new upside potential. Our target price
for the stock is now $55 (or above).

Small-cap issues continue make incredible gains in the current
market environment and the big surprise in today's session was
Tekelec (TKLC). Shares in the telecom company jumped over $6 to
a new all-time high near $32 after they posted quarterly earnings
of $0.20 a share, beating the consensus estimate of $0.18. Our
bullish debit spread at $22.50 is at maximum profit and should be
closed to protect gains. There were a number of other leaders in
the low-priced stocks and the most impressive were Silicon Valley
Group (SVGI), up $1.56 to $24 and P-Coms (PCMS), up $1.88 to $17.
Both of the diagonal spread plays on these issues have offered
multiple early-exit opportunities and we will continue to adjust
the positions higher to retain profits. Key Energy Group (KEG)
reached $10 during the session and that bullish position;
JUL7C/FEB10C is also expected to return maximum profit at
February expiration.

There was some bad news in the portfolio today. Telephone service
and equipment provider World Access (WAXS) and STAR Telecom (STRX)
have agreed to trim the value of their merger deal. Under the new
terms, World Access will pay between $7.50 and $8.00 per share of
the global telecommunications service provider stock, down from
$10.50 when the deal was first announced last year. The statement
said the two companies agreed to lower the deal's price tag after
further review showed that significant capital will be needed in
the near term to deploy an expanded sales force and invest in
technology in Europe, where the combined company plans to focus
its efforts. Our position fell to the break-even point on the
news but fortunately, we have a few months of time value in the
long option and the eventual outcome will be profitable.

Questions & comments on spreads/combos to Click here to email Ray Cummins


DLX - Deluxe Corporation  $29.00     *** New IPO! ***

Deluxe supplies paper-based and electronic payment and information
solutions services and payment protection and risk management
services to the financial and retail industries. Deluxe provides
check printing, direct marketing, customer database management and
related services to financial institutions through subsidiaries
that include Chex Systems, Deluxe Payment Protection Systems, NRC
Holding Corporation, Deluxe Data Resources, FUSION Marketing and
Deluxe MarketWise. Deluxe provides electronic transfer processing
and software through Deluxe Electronic Payment Systems and markets
and sells specialty business papers, greeting cards, gift wrap and
related products through its Current and PaperDirect subsidiaries.
In addition, Deluxe has formed a joint venture called HCL-Deluxe
with HCL of India to provide products to the financial industries
in India and the United States.

On Monday, Deluxe reported that fourth-quarter earnings rose by a
better-than-expected 11% as net income edged higher to $58 million
or $0.79 a share. The consensus of analysts' estimates was $0.74.
The big news came in the form of plans to combine and spin off two
of its technology-related business units. Under the spin-off plan,
Deluxe will merge eFunds, its electronic payments and services
unit, with iDLX Technology Partners, which provides information
technology and related services to financial services companies.
The businesses will become an independent, publicly traded company
called eFunds. Deluxe said it intended to sell a minority interest
in eFunds through an initial public offering in May or June.

After the announcement, Salomon Smith Barney upgraded the company
to a BUY with a target of $41, based on the e-funds spin off. The
brokerage commented that separating the companies into two pieces
is an appropriate avenue to follow, given that the two units are
worth a minimum of $36. With that kind of fundamental assessment,
this position offers a high probability of profit with relatively
low risk.

PLAY (conservative - bullish/diagonal spread ):

BUY  CALL APR-25 DLX-DE OI=46 A=$4.38



BEAS - BEA Systems  $84.94     *** Master Of B2B ***

BEA Systems is one of the leading providers of cross-platform
middle-ware and application server solutions for enterprise
applications. BEA's products and services enable mission-critical,
distributed applications to work seamlessly in client/server,
Internet, and legacy environments. BEA provides transactional,
messaging, and distributed object-based software, as well as an
industry-leading Java Web application server, for developing and
deploying these enterprise applications. In addition to its broad
software product line, BEA provides complete solutions to its
customers through a full range of services including developing
custom components, consulting, training, and support, and BEA's
extensive partner network. BEA focuses on four primary product
lines: BEA TUXEDO, BEA WebLogic, BEA eLink and BEA eSolutions.

Companies that provide software for e-commerce infrastructures
are in demand and BEAS is poised to climb to the top of the heap.
Recently selected by the Phoenix-Engemann Aggressive Growth Fund,
Bea Systems is on a short list of technology issues that have
demonstrated top-line expansion and have solid long-term growth

The most recent brokerage analysis comes from First Boston and
in late January, they reiterated their STRONG BUY rating, based
on higher-than-expected revenues and EPS in the quarter. Another
popular technology research company, SoundView also rates BEAS a
STRONG BUY, citing the possibility of several future deals with
large corporations. We simply favor the bullish technical outlook
and the favorable option premiums for this deep in-the-money debit

PLAY (conservative - bullish/debit spread):

BUY  MAR-50 BRQ-CJ OI=62 A=$36.38
SELL MAR-65 BUC-CM OI=68 B=$24.25
INITIAL NET DEBIT TARGET=$11.88-$12.00 ROI(max)=25% B/E=$62.00



TUP - Tupperware  $16.80     *** Reader's Request! ***
Tupperware is a multi-national company engaged in the manufacture
and sale of Tupperware consumer products for the home. The core
of Tupperware's product line consists of food storage containers,
which preserve freshness through their patented Tupperware seals.
The company also offers a line of children's educational toys,
serving products, and gifts. Products also include colanders,
tumblers and mugs, mixing and serving bowls, serving centers,
microwave cooking and serving products, and kitchen utensils.
Merchandise is marketed under the Tupperware brand as well as
Modular Mates, Fridge Stackable, OneTouch, Rock N'Serve, Meals in
Minutes, Legacy Serving and TupperMagic brands. Tupperware relies
primarily on the "demonstration" method of sales. Demonstrations,
which are sometimes referred to as "Tupperware parties" are held
in homes, offices, and social clubs, and allow the customer to
appreciate the feature and benefits of Tupperware's products.

On Tuesday, the company reported earnings and although they were
not sterling, the outlook is favorable. The CEO says he expects
a modest increase in sales with a 20% rise in net income in the
year 2000. A return to sales growth would please investors and
restore optimism in the company's future outlook. To begin that
process, Tupperware recently launched an e-commerce feature on
its website, and started a re-engineering program expected to
boost operating profits significantly by the end of next year.
Maybe that's the reason the chart pattern has begun to reverse
for the better.

One of our devoted readers pointed out this recovery-in-progress
and requested a conservative, low-cost position on the issue. A
debit spread is the simplest way to profit from a bullish move
without stock ownership. In this case, a small disparity in the
option premiums will allow us to open the play at a discount.

PLAY (conservative - bullish/debit spread):

BUY  CALL APR-15.00 TUP-DC OI=44  A=$2.62
SELL CALL APR-17.50 TUP-DW OI=264 B=$1.12
INITIAL NET DEBIT TARGET=$1.38 ROI(max)=81% B/E=$16.38


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